APRA Maintains 3% Serviceability Buffer
The Australian Prudential Regulation Authority (APRA) has reaffirmed its decision to maintain the 3% serviceability buffer on home loans despite growing calls for a more dynamic approach. Following its routine review, APRA concluded that the buffer remains appropriate given current economic risks, including high household debt, persistent cost-of-living pressures, and a weakening jobs market.
Why the Buffer Stays
APRA Chair John Lonsdale explained that while inflation is moderating and the risk of further interest rate hikes has eased, uncertainties remain. These include geopolitical instability and potential shocks to household incomes if unemployment rises. The buffer acts as a safeguard, ensuring that borrowers can manage their loans under more adverse scenarios.
Lonsdale noted that while house prices have eased slightly, they remain 40% higher than pre-pandemic levels, contributing to significant household debt. APRA will continue to monitor credit growth, the quality of lending, and non-performing loans closely.
Industry Advocates for Change
Despite APRA’s stance, the broking industry has urged greater flexibility in how the buffer is applied. Advocates argue that a dynamic buffer, adjusting with interest rate changes, could enhance borrowing access, particularly for first-home buyers and those seeking to refinance.
Mortgage & Finance Association of Australia (MFAA) CEO Anja Pannek highlighted that the 3% buffer is a significant barrier for borrowers trying to refinance. She suggested allowing a reduced buffer of 1% for like-for-like refinances, enabling borrowers to switch to more suitable loans.
Peter White, Managing Director of the Finance Brokers Association of Australia (FBAA), echoed this sentiment, suggesting the buffer should be lowered to 1.5–2%, particularly in a stable interest rate environment.
APRA’s Response
While acknowledging these concerns, APRA believes the current buffer remains essential to mitigating risks to the financial system, particularly given Australia’s high household debt levels. The regulator emphasized that lending standards must remain prudent to prevent credit-related vulnerabilities.
For now, APRA’s macroprudential settings, including the countercyclical capital buffer at 1%, remain unchanged. However, the regulator continues to monitor the economic environment closely, leaving the door open for future adjustments if necessary.
